Program
Review and Investigations Committee

Minutes

<MeetMDY1>May 12, 2011

Call to Order and Roll Call

The<MeetNo2>Program Review and Investigations
Committee met on Thursday,<MeetMDY2>May 12, 2011, at<MeetTime>10:00
AM, in<Room>Room 131 of the Capitol Annex. Representative
Fitz Steele, Chair, called the meeting to order, and the secretary called the
roll.

Co-Chair Steele welcomed Senator Clark as a new member to
the Program Review and Investigations Committee.

Approve Minutes for January 13, 2011

Upon motion by Representative Simpson and second by Senator Pendleton,
the minutes of the January 13, 2011 meeting were approved by voice vote,
without objection.

Staff Report: Medicaid Management and Integrity:
Update on Recommendations from Three Program Review Reports

Van Knowles presented the report. He said staff have
prepared a combined follow-up review of 56 recommendations from 3 prior
committee reports adopted in 2004, 2006, and 2007. Many of the findings in the
report are based on statute or best practice, without considering budgetary or
staffing limitations.

In the area of Medicaid administration, staff found that the
Department for Medicaid Services as well as the Department for Community Based
Services continues to have inadequate administrative staffing. Medicaid has improved
its written documentation of internal policies and procedures, but still needs
a formal policy or standard for such documentation. Also, Medicaid has
conducted some cost-benefit analyses, but needs to implement continuous
measurement of costs, savings, and benefits across all cost containment
efforts. Staff also found that Medicaid has improved its contract monitoring
efforts, and more internal audits and reviews by the Office of Inspector
General may be needed. The cabinet has implemented many other recommendations
or parts of recommendations related to administration, while several remain
outstanding.

He said, in the area of program integrity which covers the
reduction of fraud, abuse, and waste, previous reports recommended a state
false claims act to encourage whistleblowers to report fraud. He said Medicaid
has depended on program integrity vendors to supplement its administrative
staff. However, program integrity efforts have been limited in that there have been
three vendors since 2003 and Medicaid was without a vendor for 30 of the 54
months from July 2006 to December 2010. Providers are required to keep records
for 5 years, but program integrity vendors have been unable to examine all
providers for improper payments over the past 5 years and some older
overpayments are unrecoverable.

Medicaid has made progress toward prepayment review of
claims to prevent improper payments. However, prevention of improper payments
requires human review of claims that the software identifies as suspicious.
Modern pharmacy claims systems that approve or deny the claim at the point of
sale make it difficult for the system to suspend claims for human review. Other
types of providers are pressing for point-of-service claims processing, but
Medicaid should consider how to prevent improper payments first.

Results in eligibility quality control have been mixed. The
overall eligibility error rate has been quite low, but the error rate for
certain adult Medicaid recipients in long-term care appears to have risen. There
also have been mixed results in the program that investigates suspected fraud
by Medicaid applicants prior to granting benefits. Previous reports recommended
such a program and it was implemented in 2005. However, the return on
investment has declined nearly to the break-even point.

Prior reports expressed concern with the relationships among
Medicaid, the inspector general, and the attorney general. Currently, these
relationships appear to be working well.

Several recommendations directed to the Cabinet for Health
and Family Services, such as auditing pharmacies and medical providers, restricting
phone-in prescriptions, and expanding health insurance premium assistance, have
been implemented in whole or in part. Action is still needed on some
recommendations, such as fragmented information systems and incomplete data.

Several recommendations were directed to the Office of the
Attorney Generalís Medicaid fraud control unit and primarily related to budget and
staffing. The unit has adequate staffing at this time, but its caseload might
increase with improved Medicaid program integrity efforts or with a state false
claims act.

Since 2007, the General Assembly has made recommended
changes to strengthen third party liability provisions to ensure that private
sources pay health costs before Medicaid does. Also, 2010 budget language
directed the cabinet to reinstitute an advisory board as recommended. Some of
the recommendations to the General Assembly are no longer relevant, while there
are others that the General Assembly may still wish to consider.

In the second section of the presentation, Mr. Knowles
covered lessons learned as documented in the report. A combination of factors,
such as limited administrative resources, the inability to attract industry
expertise, and management turnover, appear to have led to many of the administrative
deficiencies noted in this and previous reports by Program Review staff and by
the Auditor of Public Accounts. Another factor is the resistance of providers
and recipients to cost containment and program integrity efforts.

Effective management reduces improper payments and uses all
practical and effective cost controls. This requires sufficient administrative
resources. Within those resources, Medicaid must prioritize and target savings
efforts. To do so, Medicaid needs knowledge about what has worked at other
times and places. But most importantly, Medicaid needs ongoing measurement of
how each policy actually works over time. The cabinet should base its decisions
on data about what works and continues to work.

In the area of fraud and abuse, providers are a greater
source of recoveries than recipients are, but provider fraud and abuse are
difficult to discover. Program integrity efforts nationwide have uniformly
reported positive returns on investment. Although the state has to spend money
to recover overpayments, more investment seems to lead to more recoveries.

Mr. Knowles discussed the cabinetís 2011-2012 Medicaid cost
containment plan, which appears likely to result in several managed care
organizations (MCOs) covering different types of services in different parts of
the state.

The burden of operating the program would shift from the
cabinet to the MCOs. Presumably, the MCOs would have professional health plan
managers and clinical staff with less management turnover. Because the MCOs
accept the risk of cost increases, these contracts could make the Medicaid
budget more predictable. Also, the medical home and performance-based payment
models might contain costs.

The cost containment planís challenges include ensuring
cabinet capacity to monitor MCOs; continuing to cover non-MCO services; measuring
and tracking costs and benefits; obtaining adequate MCO capacity; sharing
information among multiple MCOs and the state Medicaid information system; coordinating
program integrity among multiple MCOs and state agencies; and ensuring access
and quality of care.

Mr. Knowles concluded his presentation by saying that the presentation
focused on material in Chapter 1; Chapter 2 details the background and current
status of all 56 recommendations organized in sections by topic and each
sectionís findings include status and remaining recommendations.

Senator Stine noted that the follow-up report says that the
return on investment of the Determining Eligibility Through Extensive Review
program declined after 2005 to only $1.20 per $1 invested in 2010. This was much
less than the amount reported for a similar program in previous years. Senator
Stine asked what the similar programs were and what their return on investment
rates were.

Mr. Knowles said that the previous program was called CORE
[Cooperative Review of Eligibility]. The returns that the cabinet reported at that
time were $4 to $5 per dollar invested, depending on the year.

Senator Stine asked why there was a change from $4 to $5 per
dollar invested to only $1.20 per dollar invested. Mr. Knowles said that he did
not know why there was that change in returns. The Inspector Generalís office
indicated they were going to look at that but that he did not know the results.

Senator Stine asked whether cabinet officials have explained
why they have mostly ignored the three Program Review reports that are
summarized in the present report. Mr. Knowles replied that the cabinet could
address this. The cabinet has adopted some of the recommendations but not others.

Senator Stine said that there were numerous observations in
the follow-up report about the cabinet not responding to recommendations and not
achieving the intended objectives of recommendations the cabinet agreed to. An
example of the latter is the lack of progress in measuring the net changes in
cost and quality of care when attempting to contain costs, increase efficiency,
or improve quality. Mr. Knowles said that would be one of the major points that
staff have tried to make in the report.

Representative Steele asked the cabinet to address the three
recommendations related to measuring cost containment. Mr. Wise said there are numerous
things that Medicaid is doing in the area of cost containment and it is
somewhat problematic in certain situations to get definitive data that proves
that everything they did was successful. Many of their activities, many of
which are happening at the same time, are interrelated and it is often
difficult to isolate the effect of one action from another. The cabinet tries
to implement all recommendations it gets from providers, recipients, and the
legislature.

Mr. Wise said they review quarterly reports from their
pharmacy benefit administrator, detailing each action put into the system to
contain costs and the effect of that action, ongoing and cumulative. Medicaid
would be able to provide additional documentation after a scheduled meeting
with the vendor later on May 12. The cabinet had determined that the Kentucky
Medicaid administrative agent was not effective and had cancelled that contract.
In the current administration, most of those activities, such as provider
enrollment, have been brought back in house to do more effectively and to have
more direct control. Prior authorization is still being done through another
vendor. KyHealth Choices was an initiative under the previous administration
and it was determined at the beginning of this administration that it has not
been entirely successful.

Senator Pendleton requested that in future the cabinet would
be given at least 24 hours to prepare before being questioned by the committee.
Committee members are not getting the answers needed to make honest decisions
concerning the citizens of Kentucky. All areas of Kentucky need to be
considered when looking at and implementing Medicaid managed care.

Representative Steele and Senator Higdon said this report will
be reviewed again in next monthís meeting.

Senator Stine said that it was her understanding that the cabinet
had had the report for three weeks and that it was an elaboration on a report that
was considered in January. This was not sprung on the cabinet, and there have
been numerous reports for years covering these issues. She encouraged the
cabinet to read the report, noting the reportís findings regarding written
documentation of internal policies and procedures; a lack of any kind of cost-benefit
analysis; which was a concern also raised by the auditor; finding out where
improper payments had been made; why under CORE the return was as much as $4.50
per $1 spent and now it was down to just $1.20 spent; and how program integrity
functions should be in place for the new managed care contracts.

Senator Stine quoted from the report that KRS 205.6336
requires the cabinet, along with the Finance and Administration Cabinet, to
provide quarterly cost containment reports to the Interim Committee on
Appropriations, which apparently has not been done. Progress reports for 2008
and 2010 have not been received. She said the reason for requiring reports was
to determine whether programs in place are working effectively and are serving
the people of Kentucky.

Senator Stine said that some of the 7,000 employees in the
cabinet could possibly be freed up to make sure that money is not wasted and by
spending a little extra money on that may in fact save a lot more money.

In response to questions from Senator Higdon about
constraints related to personnel, Mr. Wise said there was a concern of
attracting employees with the exact health industry experience needed because
of the state salary structure and not being able to compete with the executive
salary structure of the private health industry. He said about 190 of the 7,000
cabinet employees work with the Medicaid program, which does not include field
services workers in each county. Additional personnel would help to recover
some of the monies lost through fraud. He said the plan initially was to have
12 additional people work on the managed care initiative. They were not hired
contractors but were all state staff or a combination thereof.

In response to a question from Senator Higdon regarding the status
of developments on the managed care initiative going into effect July 1, Mr.
Wise said the RFPs are due May 25 and after evaluating and scoring those
proposals, more would be known. Since the beginning of the special session, the
cabinetís focus had been on the managed care initiative, which was part of the
problem for not having been able to evaluate the Program Review staff report.

Senator Smith commented that cabinet officials were being
asked questions about Medicaid with which the cabinet should be very familiar. He
is concerned that legislators, who are held accountable by the taxpayers, are
not getting answers to questions. The lack of oversight and lack of a clear
answer on the return of investments should concern everybody.

In response to a question from Senator Smith, Mr. Wise said
that the cabinet is on goal to meet the targets that were set forth in the past
session.

Senator Smith said that he sensed resistance on providing
information on the return on investment and other analysis. He asked why there
would be such a delay. Mr. Wise said that during the special session the
cabinet presented numerous times on the progress of the ongoing initiatives. A
quarterly report is sent to staff of the Interim Joint Committee on
Appropriations and Revenue, which tracks those initiatives. The cabinet has
sent the report in a format that it developed and has not received any feedback
from the committee. The cabinetís understanding is that the requirements set
out in statute are being met. If not, cabinet staff need to understand what
else needs to be done.

In response to a question from Senator Smith, Mr. Wise said all
ongoing items had been reported on. Managed care has not been reported on yet
because it is in the middle of procurement. The cabinet has reported on the
initiatives presented during the special session.

Senator Smith said that he is agreeable to meet again in 24
hours to receive updated information to pass on to the people in his district.

Senator Pendleton said that the Program Review and
Investigations Committee has the authority to subpoena people and to put them
under oath, but he hoped they would not have to do that. He hoped that by
giving the cabinet more time, the cabinet can explain their response to what committee
staff found because he has full confidence in the staff.

Senator Stine suggested that the cabinet take a look at the
recommendations in the report that before it enters into new contracts, that there
should be measurements in place, that there should be transparency and
guideposts for operating. She suggested that cabinet officials a look at pages
57 to 59 of the report, on the need for consolidation of data to ensure program
integrity and look at the different streams of services to see if there is
overlap, and reduce any duplication.

Senator Stine said she would like to hear from the Office of
Inspector General (OIG) as well as the Attorney General. She noted that the
report said that OIG no longer sends to the Attorney Generalís Medicaid Fraud
Control Unit notification of hotline complaints involving only recipient fraud
and abuse. She said that the report states that the cabinet said that in April
2011 that method-of-payment information, as recommended by the 2003
Prescription Drug task force, will be captured. Such information would help
identify Medicaid recipients.

Senator Stine asked whether the system is in place. Ms.
Guice said the KASPER system is moving to a different platform that will
capture the payment data. They did not make the April goal because of technology
personnel issues. They are changing to ASAP 2009, a Pharmaceutical Association standard
of data fields, which will capture payment data. It is anticipated to be completed
by the end of 2011.

Representative Steele said the Cabinetís written responses
to the recommendations covered in the staff report should be submitted to Program
Review staff by May 23.

Senator Stine said that she hoped that the co-chairs would
consider utilizing the committeeís subpoena power if necessary.

Mr. Denham said that for Federal Fiscal Years 2009 and 2010,
the $112 million in recoveries and awards that the Medicaid Fraud & Abuse
Control Division received were generally from civil cases or criminal cases
that they prosecuted or litigated that were awarded either by a jury verdict or
fines and penalties, or criminal cases that were settled and the unit received
recoveries. The return on investment for those two years was nearly $20 per
dollar spent, both federal and state monies. The state receives a quarter
because the unit is funded by a federal grant. Since January 2008, they have
recovered nearly $175 million.

Senator Smith asked if any outside agency confirms these
reported numbers. Mr. Denham said that the auditorís office audits all state
agencies annually, but was unaware whether the quoted numbers were audited. He
could provide the actual settlement documents that showed those numbers and an
actual spreadsheet that indicated the amounts of recoveries and the dates they
were recovered.

Representative Steele requested that Mr. Denham provide that
information to Program Review staff by May 25.

In response to questions from Senator Seum, Mr. Denham said
the $175 million recovered included federal and state dollars as well as costs.
They participate in global cases through the National Association Medicaid
Fraud Control Units; a portion of that recovered money stays in their office
and the rest gets paid to Medicaid. It is not entirely accurate to say that the
state gets 30 percent of the $175 million; it depends on the type of case. That
would be generally accurate for global cases. When recovered money is received,
a portion stays in their office, a portion is paid to outside counsel and the
rest is paid to Medicaid. He said the Department of Medicaid Services would be
able to indicate what happens to the money it receives. He agreed to provide
the breakdown of who received what portion of the recoveries.

Senator Pendleton said that his research indicated
connections between what has happened with the Illinois retirement system and
the Kentucky Teachers Retirement System and the State Employees Retirement
System. He asked that this be put on the forefront for follow-up and for
seeking a dual investigation of the retirement systems.